Home Sales Keep Rising Despite High Mortgage Rates

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Key Takeaways

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• The increase in sales suggests buyers are getting used to the idea of paying rates in the high 6% range, compared to 3%- 4% before the pandemic.

Homebuyers may not like the new normal of mortgage rates in the high 6% range, but they’re getting used to it.

Sales of existing homes rose for a third month to a seasonally adjusted annual rate of 4.2 million in November, the National Association of Realtors (NAR) said Thursday. The 6.1% increase from the same time last year was the highest year-over-year jump in sales since 2021 and edged out forecasters’ expectations for an annual rate of 4.1 million, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

November Sales Were Still Historically Low

The sales rate was the highest since March but low by historical standards. Soaring prices and mortgage rates far higher than those during the pandemic era continue to discourage buyers.

Annual sales are on track to be their lowest since 1995, said Lawrence Yun, the association’s chief economist, on a conference call with reporters. However, the “lock-in effect” of high mortgage rates may be fading, boosting sales.

“Maybe consumers are just simply getting used to this mortgage rate as the new normal,” Yun said.

Mortgage Rates Remain Elevated

The average rate for a 30-year mortgage ranged from 6.72% to 6.84% during November, according to Freddie Mac. That’s more than double the record low of 2.65% that buyers were able to get in early 2021 when many homeowners took the opportunity to refinance.

Yun speculated that life circumstances may force some homeowners to sell and swap out their low-rate mortgages for today’s costlier ones.

“Maybe people are retiring, maybe they found the job at another location. All these life-changing events would imply that people would need to give up their 3%,4% mortgage rate locked in in order to search for the next home,” he said.

However, higher mortgage rates are undoubtedly still keeping home ownership out of reach of many would-be buyers.

To buy a median-priced home of $406,100 at a 6.84% mortgage rate would require a monthly payment of $2,127, assuming a 20% down payment and a 30-year fixed loan. The same-priced home would only cost $1,421 a month at 3.29%, the average rate just before the pandemic hit at the beginning of March 2020.

Buyers sitting on the sidelines may have been disappointed in the direction of mortgage rates in recent months. The Federal Reserve has cut its benchmark interest rate by a full percentage point since September, but mortgage rates haven’t followed suit.

Rates offered for mortgages are influenced by the federal funds rate, which determines the short-term rates at which banks lend money to one another. However, mortgage rates also depend on other financial market factors, such as yields on 10-year treasurys, and investor concerns about inflation.

Those treasury yields spiked Wednesday despite the Fed cutting interest rates after Fed officials scaled back their expectations for more rate cuts in the year ahead.